Insurance Planning

Insurance planning is the process of analyzing what types of insurance is needed for the protection of a person's assets and ability to create assets. You can insure pretty much anything these days: from the usual life, health, home and car insurance to the uncommon things like a person's hair, voice, or even smile. Whatever is insured, the insurance comes down to two categories:

  • Protection of assets
  • Protection of one's ability to produce assets.

I. Main Principles Behind Insurance

Risk

Risk is the uncertainty of a loss. If one cannot be 100% guarantee that something cannot be lost, then there will always be a risk of a loss. Many types of risk exist and are broken down into two categories:

Objective Risk
The qualities of objective risk have:

  • A relative variation from the actual loss and expected loss
  • Declines as a number of exposures increases

Subjective Risk
The qualities of subjective risk have:

  • Uncertainty based on mental condition or state of mind
  • Difficult to measure

The Chances of a Loss

Peril and Hazard

A peril is defined as a cause of loss

A hazard is defined as a condition which increases the likelihood of a loss or increases the severity of the loss if a peril occurs

There are three types of a Hazard Dangers:

  • Physical - An actual physically hazardous condition (i.e. black ice on the roads)
  • Moral - A dishonest tendency for the person exposed to a loss
  • Morale - Indifference of the person exposed to the loss (i.e. reckless driving)

Risk Management

The Five Methods for Handling Risk
  • Avoidance – Totally avoiding the risk
  • Loss Control – Having a buffer to reduce the severity of the loss
  • Retention – Accept the risk and manage the risk actively
  • Insurance Method – Sharing the risk with an insurer
  • Non-insurance Method – Hedging, incorporating, or contracting the risk

II. Legal Principles

III. Types of Insurers & Marketing

IV. Homeowners Coverage

V. Personal Auto Policy (PAP)

VI. Employee Benefits

Class Study Guide

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